10 questions to ask before getting a secured credit card
credit cards
It's tough to get by without a credit card.
You need one to make a hotel or plane reservation, or to rent a car, even if you plan to pay cash. Responsible use of a credit card builds a good credit rating, too, marking the owner as mortgage-worthy.
But people who have never had credit or need to repair a poor credit history may not qualify for a regular credit card. For them, a secured credit card may be the only way to establish, or re-establish, credit.
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10 questions to ask about secured credit cards:
- What is a secured credit card?
- Where can I get a secured credit card?
- What kind of charges will there be?
- How much money do I have to deposit?
- Do all banks offer secured credit cards?
- Are there any problems to watch out for?
- Does the issuer report to all three major credit bureaus?
- How long does it take to qualify for an unsecured card?
- Will my deposit earn interest?
- How can I make the best use of a secured card to build my credit rating?
If you need to build credit, here are the answers to the top 10 questions about secured credit cards.
7. Does the issuer report to all 3 major credit bureaus?
The reason for having a secured card goes far beyond being able to buy things online. It's a vehicle for building a good credit history. If the issuer doesn't report, you've lost a major benefit. (Tip: If you start getting mailers offering you unsecured cards after you've made several months of payments on time, you'll know that the bank is reporting.) Ask if the issuer will flag the report to the credit bureaus as a secured card. Consumer Action points out that such a flag could be a deterrent to rebuilding credit.
You can also learn for yourself whether your issuer is reporting by checking your credit reports. Do it for free at myBankrate.
8. How long does it take to qualify for an unsecured card?
The card issuer should want to keep you as a customer, so most will qualify you for an unsecured card after a period in which you've made all of your payments on time. The average is about a year.
9. Will your deposit earn interest?
Most issuers do not pay interest on a customer's security deposit, though a few do offer rewards on spending. Also, find out how long the money has to stay on deposit after the account is closed. Some banks will want to keep the deposit for a couple of billing cycles to cover any stray charges that arrive.
10. How can I make the best use of a secured card to build my credit rating?
Buy a few things and pay off the card every month. "People should not get these cards to carry any balance," Sherry says. While secured cards make sure you never spend more money than you can afford, it's not a good idea to keep one any longer than you have to, experts say.
Secured cards have higher annual fees and interest rates than regular, unsecured cards. If you have enough discipline to use a secured card responsibly, you have enough to use an unsecured card and set up a better savings program on your own.
"We recommend to people that it should be a steppingstone," Sherry says.
Source: www.bankrate.com
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